Microsoft Raises Internet Access Fees

Despite the growing proliferation of free Internet access, Microsoft Corp. is raising the price for unlimited access to its MSN Internet service by $2 a month.

The increase from $19.95 to $21.95 a month price announced late Thursday is scheduled to take effect this fall. The move matches a recent price increase by industry leader America Online Inc. (AOL) and also signals that Microsoft (MSFT) is unwilling to chase upstart companies that offer free Internet access.

According to John DeVaan, Microsoft senior vice president, Microsoft at the same time will offer of a $400 hardware rebate program at participating retailers for customers who pre-pay for 3 years of MSN Internet access.

Customers who took advantage of the deal would in essence be getting unlimited Internet access for about $7 a month.

DeVaan said Microsoft was committed to building their Internet access business, which currently provides services to over 2 million subscribers.

Joe Laszlo, Jupiter Communications Internet analyst, said he was slightly surprised by the MSN price hike.

“Jupiter Communications didn’t expect MSN to go with free Internet access, but we reviewed affiliation deals MSN made earlier this years with companies like Cost Co. Studies indicated that MSN might reduce their fees, not raise them,” Laszlo said. “All the same, the MSN price increase means that future affiliation discounts may be more appealing to consumers.”

Laszlo said he expected ISPs to follow AOL’s price increase two years ago, but raising unlimited access fees right now bucks and industry trend.

“Jupiter Communications believes that competition among national ISPs is going to continue to drive Internet access fees down,” he said. “This is the first time a smaller ISP has raised their rates and appears to be out of step with the industry.”

According to Laszlo, MSN’s price increase may not go over well with consumers, but added that AOL faired their price increase just fine. MSN subscriber discussion at bulletin boards and news groups has been exasperated, at best.”

“Usually when a business raises their prices they offer more services, and we didn’t see that with the MSN price increase,” he said. “MSN will most likely lose some customers over their price increase because they don’t have the same sense of community that AOL has.”

“Everybody though that AOL would create a mass exodus of members two years ago when they raised their prices, but that didn’t happen,” Laszlo said. “AOL’s price increase did not stop their momentum to add new members.”

In lieu the MindSpring Enterprises, Inc. (MSPG) pending merger with EarthLink Network, Inc. (ELNK) and NetZero’s (NZRO) apparently successful initial stock offering, MSN could not have more curious time to increase their prices, Laszlo said.

Perhaps the price increase is just part of a larger Microsoft strategy, and that there is more to come from the software giant.

In related news, Microsoft also plans to re-launch their Web portal in November with a fresh interface and new features including an emphasis on holiday shopping.

Rick Belluzzo, Microsoft group vice president, said it was time to deliver a user-friendly Web interface for MSN members.

“Really we have not yet delivered to the consumer the rich, easy experience needed to get things done,” Belluzzo said.

Belluzzo was hired two weeks ago to run the company’s sprawling Internet services. MSN has struggled behind industry leaders Yahoo! Inc. and America Online in Web search appeal.

The company’s new MSN search engine went live Thursday. A new portal for small businesses, dubbed Microsoft Central, will also go live as a beta test site at the end of September.

Belluzzo said competing with the likes of Yahoo (YHOO) and AOL is an enormous challenge, but he believes Microsoft can out execute the established Web players.

“The challenge they have in doing this is competing against a bunch of really well-established competitors out there,” Belluzzo said. “Nothing they’ve announced isn’t already offered out there by someone else. It’s going to come down to execution.”

Brad Chase, Microsoft senior vice president consumer and commerce group, said people want to be free to explore the Internet and choose from a variety of services, so executing a Web makeover is a natural place for MSM to start.

“MSN has gone through a long evolution. We started out trying to build an online proprietary service. That was a decent effort, and we learned a lot from that, Chase said. “We also learned that people don’t want to be in a controlled environment. What they want is to be able to pick the set of services they use to access the full power of the Web.”

Although Microsoft has operated MSN for years it has struggled to find a formula that will challenge net-rivals AOL and Yahoo!

According to DeVaan, Microsoft plans to provide a unique set of technologies and features at that would change how people use the Web, anywhere, anytime, and on any device.

“We’ve got a rich set of software and services that will make it easy for people to use the Web on a daily basis,” DeVaan said. “Then we’re going to extend that ease of use from the products we develop to the Web as a whole by offering something we call megaservices.”

Chase said “megaservices” are a set of services that both people and businesses utilize to simplify their Web experience.

Industry analysts anticipate a multitude of MSN service releases and upgrades to follow their MSN price hike, just to keep customers from migrating to other national ISPs that may offer more appealing services, for less.

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